US Gift Tax, Gift Tax in United States of America (USA)

US Gift Tax is a kind of transfer tax, levied on some complimentary transfer of properties as gifts, irrespective of the market value of such transfers. Usually, no financial dealing or transaction is associated with these property transfers, as they are meant solely for gifting purposes. Normally, the amount of Gift Tax a donor is required to pay depends upon certain parameters like whether he/she considers the property transfer as a gift or not.

US Gift Tax is a kind of transfer tax, levied on some complimentary transfer of properties as gifts, irrespective of the market value of such transfers. Usually, no financial dealing or transaction is associated with these property transfers, as they are meant solely for gifting purposes. Normally, the amount of Gift Tax a donor is required to pay depends upon certain parameters like whether he/she considers the property transfer as a gift or not. In this case, the nature of property transfers may be either cash or kind, like immovable properties (buildings, real estates or lands).

Gift Tax in United States is under the regulation of Internal Revenue Code, Chapter-12, Subtitle-B. However, Section 2501 of the Internal Revenue Code deals with the imposition criteria of Gift Tax on the people of United States. Like many other countries across the world, the United States Gift Tax remains intact and is not integrated with Estate Tax . In fact, Gift Tax in United States is a significant aspect of the national tax system.

 

Characteristic features of American Gift Tax:

• Gift Tax in United States is levied, after considering the nature and types of the gifted properties. There are some gifts which are transferred within three years prior to the death of the donor. In some categories of gifted properties, the giver has certain vested interests for transferring his/her properties to another person. Again, Gift Tax is applied on the total value of a charitable or remainder trust, by ascribing zero interest value maintained by the giver.
• Under normal circumstances, when transfer of property (known as Inter Vivos Gift) takes place prior to the death of the donor, such transfer of gifts do not come under the jurisdiction of Estate Tax. In fact, there are certain grounds where a Gift Tax differs from an Estate Tax. The United States Gift Tax has an effective rate, and the availability of total amount of credits from it, is certainly more than the Estate Tax. Moreover, Gift Tax is charged on properties, after they are transferred and come under the possession of the recipients.

U.S. Gift Tax: Different Aspects

There are certain categories of transferring properties as gifts, which do not come under the jurisdiction of U.S. Gift Tax. These properties are popularly known as Non-taxable Gifts. Following are some properties whose transfer is exempted from Gift Tax:

• Transfer of those properties, which are less that the yearly exclusion, for a particular year
• Transferring properties to charitable organizations
• Payment of medical and tuition expenditures on behalf of a person(s) or student(s) to medical and educational organizations
• Transfer of properties made to a political institution for use
• Offering properties as gifts to a spouse

How to derive exemptions from United States Gift Tax?

Exemption from American Gift Tax is derived on the following two grounds:

• There is a particular type of credit, which helps in negating the gift tax on certain property transfers. When the value of the property transferred as gift remains below $1,000,000, it enjoys relaxation from Gift Tax.
• As per the data available in 2006, the per head annual transfer of properties worth $12,000 is not taxable. Transfer of properties upto the said amount can be done as many times as possible in a year, in an unrestricted manner.

Even if a person enjoys complete relaxation from U.S. Gift Tax and is left with no due tax amounts, he/she is still required to file Form 709 for deriving tax return benefits.

Methods of reducing the amount of Gift Tax to considerable extents:

• In case the value of the transferred property exceeds the said amount on a particular year, it no longer enjoys tax benefits. In that case, either the concerned person pays the Gift Tax or makes use of certain “Unified Credits”, to get some relaxation in the total tax amounts.
• When Gift Taxes are paid in advance, it leads to substantial reduction in the total payable tax amounts.
• Transfers of gifted properties worth $1 million and above may be subjected to a generation-skipping transfer tax, on grounds of not satisfying certain standards and requirements.
• Undertaking an estate planning scheme, whereby maximum amount is paid to as many people as possible, facilitates some relaxation in the Gift Tax amounts.

How to extend the time period of Gift Tax returns?

For extending the tenure of filing returns on Gift Tax, it requires filling up of Form D-410G, known as the Application for Extension for Filing Gift Tax Return.

Imposition of American Gift Tax: different categories

United States Gift Tax levied on a giver on the basis of the donees, belonging to either of the following three categories:

• Class A: takes into account direct ancestors or descendants, parents, children, grandchildren, adopted children or stepchildren of the concerned donor. Under this category, any transfer of gifts worth $100,000 to the donees enjoys a lifetime tax exemption. However, if this tax exemption or any part of it is applied in case of several donees, the amount gets shared among the total number of donees in the same ratio as the gross gifts.
• Class B: includes siblings, nephews, nieces, descendants of a sibling, uncle and aunt having blood relation with the descendants
• Class C: includes all other persons, except those mentioned above

Schedules for Gift Tax Rates:

The table below shows the rate at which United States Gift Tax is levied on the three different categories of donees, mentioned above:

Group A:

 

Value of the Gifts	Taxes imposed
G < $ 3,000,000	251,150 + 12%
$2,000,000 < G < $2,000,000	146,150 + 10%
$1,000,000 < G < $1,500,000	61,150 + 8%
$500,000 < G < $1,000,000	26,150 + 7%
$100,000 < G < $200,000	3,150 + 5%
$50,000 < G < $100,000	1,150 + 4%
$10,000 < G < $25,000	100 + 2%

Group B:

 

Value of the Gifts	Taxes imposed
G < $ 3,000,000	394,600 + 16%
$2,000,000 < G < $2,000,000	244,600 + 15%
$1,000,000 < G < $1,500,000	109,600 + 13%
$500,000 < G < $1,000,000	49,600 + 12%
$100,000 < G < $200,000	7,100 + 10%
$50,000 < G < $100,000	3,100 + 8%
$10,000 < G < $25,000	450 + 6%

Group C:

 

Value of the Gifts	Taxes imposed
G < $ 2,500,000	365,650 + 17%
$1,500,000 < G < $2,500,000	205,650 + 16%
$1,000,000 < G < $1,500,000	130,650 + 15%
$500,000 < G < $1,000,000	60,650 + 14%
$100,000 < G < $250,000	10,150 + 12%
$50,000 < G < $100,000	4,650 + 11%
$10,000 < G < $25,000	800 + 9%

Note: For all categories, “G” denotes the value of the gifts.

Since the rules and regulations applicable to United States Gift Tax are highly complex in nature, it is advised that all American citizens verify the rules with their individual tax authorities, prior to transferring properties as gifts, each worth $10,000 and above.